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The Q3 2026 earnings season has begun with unusually strong profit expectations, even as US equities face renewed market pressure.
Analysts also raised earnings estimates by 1.4% during Q3 during Q3, compared with an average downward revision of 2.2% over the past five years. Meanwhile, 62% of companies issuing earnings per share (EPS) guidance provided positive outlooks, well above the five-year average of 40%.
However, the recent market pullback has placed greater scrutiny on corporate earnings. On 14 October, the S&P 500 declined 1.1%, while the Nasdaq-100 fell approximately 2.0%, as higher-than-expected US inflation revived concerns over further Federal Reserve tightening. Technology shares faced additional selling pressure amid questions about the financing costs and profitability of substantial artificial intelligence (AI) investments.
Following a strong rally earlier this year, the key question is whether corporate earnings and forward guidance can restore market confidence and provide sufficient support for US equities amid expectations of elevated interest rates.
Can Strong Corporate Earnings Sustain the US Equity Rally?
Strong earnings do not always translate to higher share prices. Even when companies deliver solid business performance, investors may expect more, particularly after a prolonged market rally.
One concern is the concentration of earnings growth among technology and AI-related companies. According to LSEG estimates, the technology sector and AI-linked giant companies such as Alphabet, Amazon and Meta could account for roughly two-thirds of the S&P 500’s expected earnings increase in Q3. With growth concentrated among these companies, disappointing results or forward guidance could weigh on the broader market.
Recent market movements highlight this sensitivity. On 8 October, the semiconductor index fell 3.4%, even as TSMC reported a 54.6% year-on-year increase in September revenue. While strong chip demand suggests AI infrastructure spending remains robust, investors are increasingly questioning whether companies investing heavily in AI can generate sufficient revenue and profits to justify these costs. Strong demand for AI infrastructure today does not necessarily guarantee sustainable returns on these investments in the future.
Higher interest rates add further pressure. With the US 10-year Treasury yield remaining above 5%, bonds offer more attractive yields relative to equities, while elevated borrowing costs could make capital-intensive investments more expensive to finance.
As earnings season unfolds, investors may look beyond headline profit growth and focus more on whether corporate spending can translate into sustainable profitability and free cash flows, particularly when so much of the market’s optimism depends on continued AI-driven growth.
Which Sectors Should Investors Watch During Q3 Earnings?
Q3 earnings results will provide important insights into how different industries are navigating elevated financing costs, changing market demand and pressure to maintain profitability.
Financials: Bank Profitability and Credit Risks
Financial institutions have provided the first indications of how banks are navigating these conditions. Citigroup reported Q3 net income of US$5.2 billion, compared with US$3.8 billion a year earlier, exceeding earnings expectations. However, its shares declined 5.6% on 13 October, as higher credit provisions and weaker trading revenue raised concerns over earnings sustainability.
Bank of America faced further pressure, with its shares falling 4.8% on 14 October after reporting a drop in net income of US$6.9 billion.
These market reactions highlight how investors are looking beyond headline earnings figures, with greater attention on trading performance, credit risks and the bank’s ability to maintain profitability amid elevated interest rates.
Technology and AI: Investment Returns and Earnings Sustainability
Technology and AI-related companies face a different question: can the rapid expansion of AI infrastructure generate sufficient revenue and earnings to justify its cost?
ASML reported record Q3 revenue of €11.7 billion and raised its annual sales outlook, supported by strong demand for semiconductor manufacturing equipment. Nevertheless, its US-listed shares declined nearly 4% on 14 October amid a broader technology sell-off following higher-than-expected US inflation data.
The reaction illustrates how elevated valuations and interest rate concerns can overshadow positive corporate results.
With Microsoft, Alphabet and Meta scheduled to report later in October, investors will be watching several key indicators:
- Cloud and AI revenue growth: Whether Cloud and AI investments can generate stronger revenue growth and other commercial benefits sustainably.
- Capital expenditure: Whether rising investment in AI infrastructure is supported by sufficient demand.
- Profit margins and free cash flow: Whether businesses can maintain sufficient profit margins and free cash flows as investment spending increases.
- Forward guidance: Whether management’s outlook for demand, investment and profitability supports expectations for continued earnings growth.
Together, these indicators could help investors assess whether the rapid expansion of AI infrastructure is translating into sustainable financial performance.
Consumer Discretionary: Consumer Demand and Pricing Power
Consumer discretionary companies will provide another perspective on the resilience of household spending.
Nike’s recent 4% year-on-year revenue decline highlights weakness in parts of discretionary retail, although company-specific challenges also contributed to its performance.
With Tesla reporting on 21 October and Amazon expected to release results later in the month, attention will turn to vehicle demand, online retail spending and pricing power.
Sales volumes, discounting and profit margins will be particularly important in assessing whether companies can sustain consumer demand without compromising profitability.
Why 24-Hour Share CFDs Matter During Earnings Season?
Earnings season frequently take place outside regular US trading hours. Unexpected financial results and changes in forward guidance can trigger significant share price movements before the next regular trading session begins.
For traders in Singapore, companies reporting before the US market opens may experience share price movements during the evening, while those announcing results after the US market closes may see price reactions the following morning.
By the time regular trading resumes, part of the initial price adjustment may already have taken place. Traders whose CFD access is restricted to regular market hours may therefore need to wait before responding to unexpected earnings developments.
Access to 24-hour US Share CFDs provides greater access to monitor market developments, reassess existing positions and consider trading opportunities outside regular US market hours.
Trading 24-Hour US Share CFDs with Phillip Nova
Phillip Nova offers 24-hour trading on 40 selected US Share CFDs, covering major US-listed companies across the technology, financial and consumer sectors.
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Traders can access these selected US Share CFDs with zero commission, although applicable spreads, overnight financing charges and other relevant costs may still apply.
However, extended-hours trading may involve thinner liquidity, wider spreads and greater slippage, especially around earnings announcements. Traders should also consider the risks of leveraged CFDs where both gains and losses can be magnified.
What Earnings Season Means for Investors
Strong Q3 earnings expectations have placed greater focus on whether corporate results can justify market valuations amid elevated interest rates and concerns over AI investment returns. Beyond headline profits, investors will be watching margins, free cash flow and forward guidance for signs of sustainable earnings growth.
For traders monitoring earnings-related market movements, Phillip Nova’s 24-hour US Share CFDs provide access to selected US-listed companies beyond regular trading hours.
Traders who would like to familiarise themselves with the platform can start with a free MT5 demo account to practise, or open a live account on NOVA or Phillip MetaTrader 5 when you are ready.
About the Author
Chen Yurui
Strategist
Chen Yurui graduated from the National University of Singapore with a major in Finance and is currently a CFA Level III candidate. He has experience in financial market analysis and OTC derivatives, with a focus on FX, precious metals, CFDs and macroeconomic outlook.
Through his work, he has gained hands-on experience in algorithmic trading and trading systems, including developing, backtesting and optimising Expert Advisors (EAs) on MetaTrader 5. He aims to make financial markets and trading concepts more practical and accessible to investors.
